Appraisers In 'Basic Agreement' On How To Clean Up Industry

November 23, 1986|By Ann Mariano, Washington Post

WASHINGTON — A self-regulatory system for the country's estimated 250,000 real estate appraisers, devised in response to congressional calls for a cleanup of widespread abuses in the industry, has been proposed by a leading appraisal organization.

Under the plan, appraisers would have to pass an examination to be certified by state boards, and agree to abide by standards and rules established by a national board, said Richard C. Wolcott, new president of the American Institute of Real Estate Appraisers.

The system, however, would not be mandatory, and uncertified industry members would not be prohibited from calling themselves appraisers or from performing appraisals.

Wolcott said the seven other major trade groups are in ''basic agreement'' with the plan.

In a report issued recently after lengthy hearings in late 1985 and after a year of investigation, the House Government Operations Committee said faulty and fraudulent real estate appraisals are a ''serious national problem'' that has cost taxpayers, lenders and insurers billions of dollars.

The report called for federal regulation of the industry, in addition to a self-regulatory program to which all real estate appraisers would be subject. Appraisers are central figures in real estate transactions because banks and savings and loans require appraisals to establish property values before deciding whether, and how much, to lend purchasers. When property is appraised too high and loans are based on that appraisal, lenders and insurers are hit with heavy losses if borrowers default on their loans and the property is sold for less than the outstanding loan balance.

The appraisal industry has never been regulated. Appraisers generally are not required by law to have special training or certification, although about one-third of all appraisers belong to one of the eight major organizations that require members to meet certain standards. Only two states, Nebraska and Oregon, require appraisers to be licensed.

California recently became the first state to establish standards that appraisers must follow if they wish to label their work as ''certified.'' Appraisers themselves are not certified, and the law does not establish any certification process or set requirements for all appraisers.

Rep. Doug Barnard Jr., D-Ga., head of the committee's commerce, consumer and monetary affairs subcommittee, plans to introduce legislation next year empowering federal regulatory agencies to establish uniform requirements and to discipline appraisers guilty of abuse, according to a staff aide.

The bottom line is that appraisers who evaluate property used as collateral for a loan made by a federally insured financial institution be required to prove that they meet government standards, the aide said. A majority of the country's banks and savings and loans have federal insurance.

The proposals described earlier this month by Wolcott envision federal and state adoption of standards and rules once they are established by a standards board. In addition, the self-regulatory system includes ''a program for state certification (and) enforcement provisions with penalties for violations of standards and other rules . . . ,'' Wolcott said.

Appraisal mistakes and abuses have led to disastrous consequences for lenders and insurers. More than 800 federally insured savings and loans have ''significant appraisal deficiencies,'' and more than 300 of these were declared insolvent or placed in ''problem status'' by federal regulators, according to the Barnard subcommittee report.

The subcommittee investigation found that ''at least'' 10 percent to 15 percent of the $1.3 billion in losses suffered by private mortgage-insurance companies in 1984 and 1985 could be attributed to inaccurate and fraudulent appraisals. The same was true for 10 percent to 40 percent of the Veterans Administration's $420 million in losses from its loan-guaranty fund in fiscal year 1985. Dishonest or faulty appraisals were a factor in the $200 million loss to the Federal Housing Administration's mortgage-insurance program during the same period, according to the report.

Appraisers, as well as members of other segments of the real estate industry, have opposed regulatory suggestions in the past, and objections to current proposals are expected, Wolcott said. ''We have tried to stay away from words that trigger sensitivities, such as licensing and certification,'' he said.

Representatives of the eight principal trade organizations have been working since February on self-regulation proposals in response to the congressional findings, and already have agreed on a uniform set of standards for the industry, according to David W. Craig. He is a past president of the American Institute of Real Estate Appraisers, which is the only appraiser group affiliated with the National Association of Realtors (NAR).

William Moore, NAR president, said the association, whose members ''generally tend to shy away from federal regulation,'' plans to appoint its own task force to study the proposals.

Another major industry group, the National Association of Home Builders, recently passed a ''strongly worded'' resolution opposing federal policing of appraisers, said David Seiders, the organization's chief economist. Regulation would result in ''unduly conservative'' appraisals and would increase home buyers' costs, he said.